Accounting Knowledge practice questions

Transactions, journal entries & the accounting cycle

7 practice questions on transactions, journal entries & the accounting cycle, each with the answer and why it is right. From Questiva Learning' QuickBooks® Online skills test.

1. Under accrual accounting, an invoice for finished work is recorded as:

   1. Debit Checking, credit Service Income.
   2. Debit Service Income, credit Accounts Receivable.
   3. Nothing until the customer pays.
   4. Debit Accounts Receivable, credit Service Income.

   Answer: D) Debit Accounts Receivable, credit Service Income.. Under accrual, income counts when the work is done. The customer owes you, so the amount sits in Accounts Receivable until they pay.

2. Paying a bill you've already entered is recorded as:

   1. Debit the expense, credit Checking.
   2. Debit Accounts Payable, credit Checking.
   3. Debit Checking, credit Accounts Payable.
   4. Debit the expense, credit Accounts Payable.

   Answer: B) Debit Accounts Payable, credit Checking.. The expense was recorded with the bill. Paying it clears Accounts Payable and lowers Checking.

3. A one-year policy starting in September was paid upfront to Prepaid Insurance. With no adjustments since, the December 31 adjustment:

   1. Expenses the months already used.
   2. Expenses the whole premium.
   3. Debits Prepaid Insurance and credits Insurance Expense.
   4. Expenses the months still to come.

   Answer: A) Expenses the months already used.. The months of coverage used up by December 31 move to Insurance Expense. The rest stays prepaid for next year.

4. A trial balance that balances can still hide:

   1. An entry with only the debit side posted.
   2. Rent posted to Advertising Expense.
   3. A credit entered for less than its debit.
   4. A debit posted as a credit.

   Answer: B) Rent posted to Advertising Expense.. A trial balance only checks that debits equal credits. An amount posted to the wrong account still balances, so you find it in the account detail.

5. At year end, which accounts are closed so they start the new year at zero?

   1. Cash, Accounts Receivable and Inventory.
   2. Every balance sheet account.
   3. Income, expense and draw accounts.
   4. Only the expense accounts.

   Answer: C) Income, expense and draw accounts.. Income, expenses and draws measure one year at a time, so their net is closed into equity (Retained Earnings or Owner's Capital). Asset, liability and capital accounts carry their balances forward.

6. With perpetual inventory, a sale is recorded as:

   1. Sales now. Cost of Goods Sold is figured from the year-end inventory count.
   2. Sales for the profit, and Inventory for the item's cost.
   3. Sales, and the item's cost moved from Inventory to Cost of Goods Sold.
   4. A credit to Inventory for the full price.

   Answer: C) Sales, and the item's cost moved from Inventory to Cost of Goods Sold.. Perpetual inventory updates your stock with every sale. The price goes to Sales, and the item's cost moves from Inventory to Cost of Goods Sold at the same time.

7. In bookkeeping software, which of these usually needs a manual journal entry?

   1. Billing a customer.
   2. Entering the phone bill.
   3. Applying a customer's check to two invoices.
   4. Monthly depreciation.

   Answer: D) Monthly depreciation.. Depreciation has no form of its own, so it goes in as a journal entry. Invoices, bills and payments each have a form.